Fed Divided Over Timing of Next Rate Hike

The Federal Open Market Committee was divided over when it will next raise the target federal funds rate, which they decided to hold at 1 to 1.25 percent, according to minutes from the FOMC’s July 25-26 meeting. “Some” FOMC members expressed uncertainty about inflation, saying that the committee “could afford to be patient” in deciding when to raise rates, while others said the labor market has neared full employment and a delay in raising rates “would likely be costly to reverse” or “could lead to an intensification or financial stability risks or to other imbalances that might prove difficult to unwind.”

The committee also said its plans to begin reducing the Fed’s balance sheet will be “formally announced next month.” The balance sheet is swollen with $4.5 trillion in securities purchased as part of quantitative easing programs between 2008 and 2014.

FOMC members said they expect continued economic growth and job gains in the near term, and agreed that the timing and size of future rate hikes “would depend on their assessment of realized and expectation economic conditions.”

Read the FOMC minutes.

About Stephen Newton

Stephen Newton is an economic research associate at ABA.
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